Wednesday, June 13, 2018

Q&A on China's Corn Subsidy

China's corn farmers can expect to continue receiving their subsidy payments in the future as subsidies tied to acreage planted in specific crops become one of China's main subsidy strategies, according to a recent online article posted on numerous agricultural news sites in China. It is clearly tied to the amount of corn grown, unlike the first round of grain subsidies that began in 2004.

The article provided answers to 10 questions to help farmers understand the corn subsidy payment.

1. Will this be the last year for the corn subsidy?
A: This is the third year of the subsidy's 3-year trial, but it is likely to continue in future years. Indeed, it may become a common subsidy measure that covers all crops (it already covers corn, soybeans, and rice).

2. When is the land area for the corn producer subsidy verified?
A: Each year by June 30. The subsidy funds are distributed by September 30.

3. How much is the subsidy?
A: The amount varies by province and year. During 2016, Heilongjiang had a province-wide corn producer subsidy of 153.92 yuan/mu; in 2017 it was 133.46 yuan; and it is rumored to be cut to 100 yuan or less in 2018. Jilin, Inner Mongolia, Liaoning Provinces have subsidies that vary by county.

4. What regions are covered by the corn producer subsidy?
A: Counties and municipal districts where corn is grown in the three northeastern provinces (Jilin, Liaoning, Heilongjiang) and Inner Mongolia.

5. Are the corn producer subsidy and the cultivated land fertility subsidy the same?
A: No. Corn producer subsidy recipients are producers with land actually planted in corn. Land fertility subsidy recipients in principle are those engaged in growing grain crops, including rural people, state farms, forestry districts, and state farm employees. For contracted cropland that is transferred or subleased, in principle the subsidy is given to the contracting household.

6. Who gets the corn producer subsidy?
A: Producers who legally grow corn on cultivated land, including local farmers, family farms, farmer cooperatives, and outsiders who legally rent land. For land transferred, subsidy funds must be given to actual corn growers.

7. Is the subsidy paid for land planted in corn for silage or corn as a vegetable (sweet corn)?
A: Not corn for silage, but sweet corn is covered by the subsidy this time.

8. What is the basis for determining a farmer's subsidy payment?
A: The area of cultivated land planted in corn during the current year.

9. If a contract to transfer land has been signed but does not specify who gets the subsidy, what happens?
A: It is suggested that the two parties negotiate a settlement according to law.

10. If I have transferred my land to another party this year, does my land area have to be verified again next year if I take my land back?
A: The area planted in corn must be verified each year.

Monday, June 11, 2018

China's Hope: Unmanned Farms

China hopes its farms will eventually be run by machines who do the work and the thinking. The vision of unmanned Chinese farms is an astounding great leap from its present highly labor-intensive fragmented farming model.

At a "fully automated agriculture" pilot kicked off last week in Jiangsu Province's Xinghua municipality, a central government official remarked that agricultural field work is rapidly becoming digitized, automated, and linked to the Internet as fusion sensors, precision navigation, artificial intelligence, cloud computing and big data increase in popularity. The pilot kick-off featured unmanned tractors, rice transplanters, pesticide applicators, and fertilization equipment. Many use sensors, controllers, and a Chinese satellite for navigation.

The official said tractors on autopilot, intelligent drip irrigation, variable application of fertilizer and other new intelligent technologies are already in use by advanced countries like the United States and Israel. These technologies can help China cope with its aging work force, low productivity, polluting farming methods, and low value added in farming, the official remarked.

The 7-year pilot for automated agriculture is sponsored by an automobile industry technology alliance and the Xinghua local government. The pilot aims to build a foundation for a new Chinese agricultural production model by demonstrating advanced farm operation models and technologies, step by step bringing digitization, artificial intelligence, and online connections to cultivation, planting, field management, harvest, storage, and transportation. They hope agriculture will become a wealthy industry and that farming will become a new high-tech profession.

According to the president of Jiangsu University, unmanned farming equipment has been adapted to Chinese conditions and will bring earth-shaking changes to agriculture, both in China and in the world.

A commercial attaché from Ukraine's embassy attending the event said he hoped China would set up agricultural machinery factories in his country. An official from a Russian company said digital technology is the wave of the future, and she expressed interest in cooperation with Chinese companies.

China Chooses Feed Imports to Compete with Soymeal

China has waived inspection and quarantine requirements on a list of obscure animal feed ingredients, apparently as a strategy to reduce reliance on soybean meal as an ingredient in the country's feed industry. The move illustrates China's practice of manipulating such rules to manage trade.

China's Administration of Customs 2018 Bulletin No. 51 announced that inspection and quarantine certificates will no longer be required for a list of 71 items as of June 1, 2018. The list includes 18 items that are by-products of agricultural processing used as animal feed--all but a few of the items under the broad Harmonized System (HS) category 23. The items include rapeseed meal, peanut meal, cottonseed meal, palm and coconut meal, fish meal, sugar beet and bean pulp, the residual from sugar cane processing, wine dregs, and feed additives. Other products on the list are obscure types of fats, oils and fibers, also residual material from processing industries.

What is notable are the three categories under HS 23 NOT included: soybean meal, distillers dried grains, and wheat bran. Imports of these excluded items will still be subject to rigorous inspection and quarantine inspections at the border.

While the Customs notice claims that the items were selected on the basis of risk evaluation, the choice of items appears to be based on strategic considerations of protecting domestic industries and fostering alternatives to soybean meal. Imported soybean meal, distillers grains and wheat bran imports would compete with products of important domestic processing industries in China.

A commentary on the announcement interprets the Customs waivers as a strategic measure to diversify sources of high protein meal to reduce reliance on soybean meal--the dominant source of protein meal used in China's animal feed. The article quotes an unnamed industry analyst who notes that imports of alternative protein meals are currently very small and the analyst speculates that easing the way for imports of rapeseed, peanut, cottonseed, palm, and sugar-derived meals could diversify China's sources of high protein feeds.

The analyst also observes that distillers dried grains--the most popular alternative to soybean meal--was not included in the "liberalization." Last year China imposed antidumping duties of distillers dried grains. Its exclusion from the customs announcement appears to be another indication that Chinese authorities want to keep imported DDGS out of the market.

The commentary did not notice that wheat bran (HS 230230) was also one of the few items in the HS 23 category omitted from the customs announcement. The preservation of quarantine certificate requirements for wheat bran is likely intended to protect China's flour mills which derive significant supplementary revenue from selling bran (the by-product of milling wheat) for use in animal feed. Wheat bran prices have already been under downward pressure in China.

The customs announcement also appears to dovetail with China's strategy of promoting imports from "One Belt One Road" countries. Palm kernel and sugar cane residual products are imported mainly from Southeast Asia. China began importing peanut meal from Sudan and fish meal from Mauritania in 2016. Imports of sunflower seed meal from Kazakhstan began last year.

If challenged on the exclusion of soybean meal, DDGS, and wheat bran, China's Customs Administration will likely produce some sort of "risk analysis" that claims these three items pose a threat of introducing weeds or contaminants to China. It seems more likely that opening trade with new partners in Africa, Central and South Asia poses a risk of introducing foreign material, invasive weeds and pathogens, but customs authorities are welcoming this trade and likely rushing through approvals in the interest of promoting trade with "belt and road" countries.

This liberalization echoes another attempt to engineer trade using the same group of products two decades ago. During the 1990s China slashed tariffs on imports of items in HS 23 and waived the value added tax on imports of these items. That move was intended to fill deficits of protein in animal feeds without directly competing with grain products produced by China's farmers. It also represented a goodwill gesture of trade liberalization as China negotiated its accession to the WTO two decades ago.

The immediate result of the 1990s tariff cuts was a flood of soybean meal imports during a downturn in grain and pork markets that led to huge losses for Chinese soybean crushers. The VAT was reinstated for soybean meal to protect the crushers, and China has never been a major importer of soybean meal since then. But other items in HS 23 remained exempt.

Imports of DDGS from the United States was another unforeseen outcome of the 1990s liberalization but it took a decade to develop. Distillers dried grains were a fairly obscure commodity during the 1990s. After the U.S. ramped up its ethanol industry during the first decade of the 21st century, China's feed mills discovered imported DDGS could be a useful and cost-effective feed ingredient. Imports didn't get going until 2009, but China's imports of DDGS spiked at over 7 million metric tons and $2 billion during 2015.

Monday, June 4, 2018

China Says Ag Imports from U.S. Are Now Good

Last month Chinese officialdom decreed that imports of agricultural products from the United States are now a good thing, a reversal of past anxiety about unfair U.S. prices and threats to China's food security. A new round of tariff cuts scheduled for July 2018 backs up the rhetoric.

A May 17 Economic Observer article by a Ministry of Agriculture and Rural Affairs official proclaimed that "moderate imports" are a necessary feature of China's new stage of openness. With growing population, changing consumer demand, limited natural resources, and pollution constraints, agricultural imports are a necessity, the author said. He further asserted that agricultural imports do not conflict with domestic agricultural development as long as imports are steady, controlled, spread out over time, and spread over different sectors.

New in this article is its blessing of agricultural imports from the United States. The Ag Ministry author acknowledges that the United States is the leading agricultural exporter because of its abundant resources, large farms, and production capacity--without the usual complaints about U.S. farm subsidies, ABCD companies, trade barriers and hegemony over markets. The author concludes that agricultural trade between the United States and China benefits both Chinese consumers and American farmers.

The article was posted in various forms on dozens of Chinese news sites--including a May 19 version on the official Chinese Government web site--indicating that the new "ag imports are good" story is being pushed by propaganda authorities. A version of the article in the official propaganda mouthpiece Peoples Daily refers to China's commitment to import more U.S. products made in bilateral consultations completed May 19, suggesting the new rhetoric is at least partly a product of those negotiations. The Peoples Daily version emphasized that imports give China's consumers more choice, proclaiming China's "huge middle class" as the world's biggest market.

The rhetoric about opening the agricultural economy and giving consumers greater choice has been gaining momentum over the past year. 

On May 31 Chinese officials announced a new set of tariff cuts for imports of consumer items that will take effect July 1, 2018. Among the products scheduled for cuts, the average tariff on a select group of fish and seafood products, mineral water, and processed foods will be reduced from an average of 15.2% to 6.9% in July. These are reductions in MFN tariffs that apply to all trading partners. The pro-import propaganda blast may have been meant to notify local officials of the new party line in advance of the new round of tariff cuts.

This is not the first move to cut taxes on imports. Authorities cut value added taxes on imported agricultural products from 13% to 11% last year and sliced the VAT again to 10% as of May 2018.

Tuesday, May 29, 2018

China's Vision for Ag Science Cooperation

China's vision for solving global problems through international collaboration in agricultural science under the "one belt-one road" initiative was laid out in an article in State media this week.

The head of China's Academy of Agricultural Sciences, Wu Kongming, sees great potential for food production in the abundant water and soil resources and high quality ecological environment of belt-road countries. He said “one belt-one road” agricultural cooperation can promote orderly regional flows of agricultural factors of production and deepen agricultural market integration. Exchange of experience in agricultural development and bringing into play the comparative advantages of each country can maximize the potential for agricultural development, advancing mutually beneficial opportunities for each country, Wu said.

According to the article, China's Ministry of Agriculture drew up a vision for banding together various government departments, research institutes, and agricultural enterprises to carry out global agricultural cooperation in 2014.

Chinese Academy of Agricultural Sciences (CAAS) International Cooperation Bureau Director Gong Xifeng explained that CAAS now has over 60 foreign agricultural technology projects. China’s seeds, veterinary drugs, machinery, and plant protection technology help “one belt-one road” countries raise production, increase income of farmers, and raise the competitiveness of agricultural products, he said. China’s plan for sharing ag technology features rice, specifically “green super rice” for which they say got aid from Gates Foundation.

The Chinese strategy includes setting up joint laboratories in various countries to take advantage of genetic resources through gene sequencing, developing new varieties, etc. Examples are a joint cotton lab in Uzbekistan and a survey of cotton resources in East Africa.

The Chinese Academy of Ag Sciences sends scholars abroad and are hosting hundreds of grad students and researchers to build goodwill abroad. Mr. Gong said CAAS now has 395 foreign students, of whom 70% are from belt-road countries.

Most Chinese projects abroad are conducted by commercial entities, and CAAS is developing offices and platforms to support companies by supplying them with info about the countries. China also has a plan to nurture a new generation of domestic personnel who can speak foreign languages and understand agricultural technology (a big bottleneck to efforts to go abroad to date) to work in Chinese companies and embassies abroad.

Minimum Price Program Tweaked

China announced a modest reform of its minimum price purchase program for wheat and rice that Farmers Daily described as a signal of marketized reform.

This year's implementation plan for the program sets stricter conditions for activating minimum price procurement of wheat and rice. Minimum price procurement can begin only when the market price has fallen below the minimum price announced by the government for 3 days in a row. When this happens, the province's branch of Sinograin applies to its headquarters, which in turn seeks approval from the State Administration of Grain and Commodity Reserves to begin minimum price procurement. Minimum price procurement must be suspended when the market price rises above the minimum for 3 days.

The document allows only grain of national grade 3 or higher to be purchased at minimum prices. When there are large volumes of grain below grade 3 due to a disaster or other reason, provincial authorities are urged to begin their own "temporary reserve" purchases of grain.

The minimum price procurement for wheat can start June 1 (about a week later than in previous years) and ends by September 30. Early indica rice minimum price procurement season is August 1 to September 30. Middle and late indica rice procurement can begin October 10 and finishes by January 31. Japonica rice procurement can begin November 1 and finishes by the end of February. The national program covers the same provinces as in past years: 6 wheat provinces, 5 early rice provinces, 8 middle and late indica rice provinces, and 4 northeastern japonica rice provinces. Other provinces can launch their own procurement at minimum prices at their discretion.

This year's program is more specific about the roles of various actors. Sinograin is commissioned as the main actor in procuring rice and wheat at minimum prices. This year's document specifically identifies four state-owned companies that can purchase grain on Sinograin's behalf: COFCO, Supply and Marketing Group, Sinochem, and China State Farm Group. Sinograin can appoint other entities to purchase grain if they meet requirements for capital, assets, credit, etc.

This year the Peoples Bank of China and the Banking and Insurance Regulatory Commission are added as issuers of the document. The Agricultural Development Bank is identified as supplier of credit for the program.

The document's preamble identifies its main purpose as protecting the profits of farmers. Other language suggests that the reforms are aimed at stopping abuses of the program by local depot operators. The document calls for ensuring that quantities purchased are "truthful." Orders issued at summer grain procurement meetings warn officials not to "round trip" grain by buying and selling the same grain multiple times and they were sternly ordered not to use reserve grain as a guarantee for any other loans. There were also admonitions to prevent poor quality grain from mixing with food grains to prevent food safety threats.

Officials at the national summer grain meeting convened on May 17 anticipated that the volume of grain purchased at minimum prices will be smaller this year and prices will better reflect quality premiums.

However, a report on progress of the wheat harvest says there are serious quality problems with this year's winter wheat crop. Heavy rains during the recent harvest has caused lodging, sprouting, and mold problems in many areas. Prices are said to be lower than at this time last year.

At meetings to organize summer grain procurement officials were admonished to give proper attention to grain procurement to protect the interests of farmers and to maintain social stability. Local meetings reported training dozens of officials; counted up scales, grain driers, and other equipment on-hand; and ensured adequate credit is available from Agricultural Development Banks to buy grain.

Friday, May 18, 2018

China Quits Sorghum Anti-Dumping Investigation

China's Ministry of Commerce announced today that its antidumping and anti-subsidy investigation of sorghum imported from the United States would be terminated because duties would not be in the public interest. Provisional duties of 179% imposed last month will be terminated and deposits collected will be returned.

The Ministry's "Announcement on termination of anti-dumping and anti-subsidy investigation of sorghum imported from United States" [关于终止对原产于美国的进口高粱反倾销反补贴调查的公告] released May 18, 2018 said the investigation found that duties would raise costs for consumers and impose even more pain on the beleaguered swine industry which is suffering severe losses due to a 30-percent decline in hog prices since the beginning of the year:
"In the process of the investigation, the investigating organizations received many reactions from downstream users who told the investigation that downstream livestock farming industry would experience higher costs. The anti-dumping and anti-subsidy measures would result in higher costs of living for the broad population of consumers and would not be in the public interest. The investigating organizations found that pork prices had recently been on a sustained declining trend, and many farmers are facing difficulties. In this situation, the anti-dumping and anti-subsidy measures are not in the public interest." [unofficial translation by dim sums blog]

Thursday, May 17, 2018

Corn Auctions Cost Billions

China is disgorging massive quantities of surplus corn from its reserves, but sales are costing the Chinese treasury billions of dollars.

Today China sold 1.4 million metric tons of corn from its "temporary reserve" at an average price of 1,401 yuan ($220.79) per metric ton. Most of that corn had been purchased during 2014 at support prices of 2220 yuan in Heilongjiang Province and 2260 yuan in Inner Mongolia and Liaoning Province. Thus, the sale recovered only about 62 percent of the price paid for the corn when in was purchased about 3 1/2 years ago. Additionally, authorities paid about 5% interest on loans used to buy the corn and about 86 yuan ($13.50) per ton per year to store the corn.

The total cost of corn auctioned can be estimated by applying these accounting calculations to auction results reported on www.grainmarket.com.cn.

Estimated financial losses from China's auctions of corn from "temporary reserve", 2017-18
Item May-Sept 2017 April-May 2018

Million metric tons
Grain sold at auction 48.8 25.7

Billion dollars
Revenue from auction sales 10.4 5.9
Purchase cost -17.2 -8.9
Cost of interest and storage -4.7 -3.4
Total cost of grain -21.9 -12.3
Assumes exchange rate of 6.35 RMB/US$; interest rate 5%; storage cost of 86 yuan/ton/year. Purchase cost based on temporary reserve prices.

The April-May auctions of corn have generated $5.9 billion (using an exchange rate of 6.35 yuan/dollar), but the original purchase cost of the corn was $8.9 billion. So auction sales, on average, recovered 64 percent of the original cost of the corn--not nearly enough to pay back the loans used to purchase the corn. Interest and storage cost for the corn added $3.4 billion, presumably paid for by subsidies from the Ministry of Finance. Thus, the corn cost $12.3 billion, but only $5.9 billion was generated from auction sales. The net cost to the Chinese government and/or banks of the corn sold is therefore $6.4 billion, or $249 per metric ton.

The 48.8 mmt auctioned during May-September 2017 (for which we could find auction results) generated $10.4 billion and cost $21.9 billion, a net cost of $11.5 billion for 48.8 mmt, or $236 per metric ton.

These costs do not include costs for unsold corn still held in inventories. 

Officials are eager to sell corn since interest and storage costs go up and grain deteriorates the longer the grain is held.

Sunday, May 13, 2018

China Adjusts "Go Global" Agriculture Program

China's foreign investment and cooperation in agriculture must recognize the "deep changes in the domestic and foreign environment," "seize opportunities" and "take the initiative" according to exhortations issued at a Ministry of Agriculture and Rural Affairs meeting of officials responsible for international cooperation held last week.

Officials were instructed to guide industries to shift investment to "belt and road" countries and the Indochina region of Southeast Asia. Other edicts were to:
  • establish a complete agricultural trade policy system, 
  • actively participate in negotiations on international rules for trade and investment. 
  • Speed up nurture of a set of major international grain traders and agricultural enterprise conglomerates, 
  • encourage enterprises to optimize their industry and market layout worldwide.
The meeting chaired by Minister Han Changfu carefully studied Xi Jinping's thoughts on "rural revitalization" and "one belt, one road" and propagated the themes of building an "open agricultural economy" and international competitiveness in agriculture. According to the Ministry, better coordination of investment and developing a complete policy system improving policy support for overseas investment and technical assistance to continually improve agriculture’s international competitiveness and global influence will "add luster to the modernization of agriculture and rural areas."

There is nothing really new in last week's meeting. All the components have been included in China's recent under-the-radar program to make the country's overseas agricultural investments more effective.

A November 2016 Ministry of Agriculture circular "Program for Construction of 'Two Zones' for External Agricultural Cooperation" laid out an experimental program for trying out various support and development strategies for foreign investors in agriculture to carry out instructions in the State Council's "No. 1 Documents" to improve international cooperation in agriculture with "one belt, one road" countries and foster big grain traders and agribusiness conglomerates. Participating companies can be both state-owned and private, and non-agricultural companies are also encouraged.

In a two-year pilot program the strategy will throw different ideas at the wall and see which one sticks. "Two zones" refers to foreign "demonstration zones" and "experimental zones." Demonstration zones include various types of technology and industry parks and free trade zones with an emphasis on multiple Chinese businesses working together to form industry clusters and/or chains of industry: seeds, machinery, farming, marketing, processing and sales. "Experimental zones" are zones in China that will experiment with various policies to provide support to overseas investors in agriculture, including information databases, subsidized loans, insurance, training of companies and personnel. Companies could get help raising funds in capital markets, loan guarantees, priority in attaining national-level "dragon head enterprise" status, help with inspection and quarantine procedures. The document called for state-trading enterprises to use their tariff rate quotas to import products of Chinese companies investing in agriculture abroad.

Last July, the first ten demonstration and experimental zones were announced, and the top 100 overseas agricultural investment companies were announced in February 2018. Lists are shown below.

The first 10 demonstration zones included five in Africa, two in central Asia, two in southeast Asia, and a fishing industry zone in Fiji. The Tanzanian zone happens to be in a gold-mining region. Each zone is to be managed by a relatively anonymous provincial company:
First set of Chinese foreign agriculture development zones, announced July 31, 2017
Zone name Company responsible
Tajikstan-China Agricultural Cooperation Demonstration Park Xinjiang Lihua Cotton Co.
Mozambique-China Agricultural Technology Demonstration Center Hubei Province Lianfeng Overseas Agriculture Development Ltd Co
Jiangsu-Shinyanga Agricultural and Industrial Modern Industrial Park (Tanzania) Jiangsu Haiqi Technology Engineering Ltd Co
Uganda-China Agricultural Cooperation Industry Park Sichuan Youhao Hengyuan Agriculture Development Ltd Co
Star of Asia Agricultural Industry Cooperation Zone (Kyrgyzstan) Henan Guiyou Shiye Group Ltd Co
Sudan-China Agricultural Cooperation Open Zone Shandong International Economic Technology Cooperation Co
Laos-China Modern Agricultural Technology Demonstration Park Shenzhen Huada Genetic Sci-tech Ltd Co
Cambodia-China Tropical Ecological Agricultural Cooperation Demonstraton Zone Hainan Dingyi Luzhou Ecological Agriculture Ltd Co
Fiji-China Fishery Industry Comprehensive Industry Park Shandong Lidao Ocean Technology Ltd Co
Zambia Agricultural Product Processing Cooperation Zone Qingdao Ruichang Sci-Tech Industry Ltd Co

Experimental zones include a mix of port cities, fishing industry centers, inland border crossings, a China-Singapore food trade zone, and a tropical agriculture institute, most managed by city or county governments.
China Open Agriculture Experimental Zones, announced July 31, 2017
Zone name Organizing Unit
Qionghai Open Agriculture Cooperation Experimental Zone Hainan Qionghai City Government
Tropical Agriculture Open Cooperation Experimental Zone China Institute for Tropical Agriculture 
Lianyungang Open Agriculture Cooperation Experimental Zone Jiangsu Lianyungang City Government
Jilin Zhongxin Food Zone Open Agriculture Cooperation Experimental Zone Jilin (China-Singapore) Food Zone Management Commission
Jeminay Open Agriculture Cooperation Experimental Zone Xinjiang AR, Jeminay County Government
Raoping Open Agriculture Cooperation Experimental Zone Guangdong Province, Raoping County Government
Weifang Open Agriculture Cooperation Experimental Zone Shandong Weifang City Government
Dongning Open Agriculture Cooperation Experimental Zone Heilongjiang Dongning City Government
Rongcheng Open Agriculture Cooperation Experimental Zone Shandong Rongcheng City Government
Binhai New District Open Agriculture Cooperation Experimental Zone Tianjin Binhai District Government

A partial list of the top 100 companies designated for foreign investment in agriculture includes the top state-owned grain-trader COFCO, the top agribusiness conglomerate Guangming, many companies from the system of state farms, state-owned chemical companies, feed, seed, agricultural machinery, rubber, and fishery companies.
Sample list of 31 of the top 100 Chinese companies for foreign investment in agriculture, February 2018
COFCO Group
Guangming Foods 
Hainan Natural Rubber Industry Group
New Hope Liuhe Corporation
Shandong Ruyi Sci-Tech Group
Sinochem International
Lovol Corp
ChemChina Agricultural Chemicals
China National Fisheries Corp
Dakang International Food and Agriculture
Guangdong Guangken Rubber Group
Inner Mongolia Yili Group
Guangdong Haid Group
Tongwei Corp
Shanghai Fisheries Group
Yunnan State Farms Rubber Investment
Rugao Shuang Ma Chemical 
Shandong Meijia Group
YTO Group 
China State Farms Group
Xinjiang Production and Construction Corps Engineering
Tianjin Food Group
Shandong Sinotex
Beijing Nutrichem 
Yuan Longping Agri-Tech
Jilin Province Jinda Foreign Agriculture Investment
China-Africa Agriculture Investment Co
Jiangsu Red Flag Seed Co
Beidahuang Rice Group International Rice (Beijing)
Chongqing Grain Group Haining Fudi Investment 
Pu'er City Conghe Rubber

Saturday, May 5, 2018

China Soybean Planting "Emergency" Declared

Two Chinese provinces issued orders to increase soybean planting this spring with promises of a big subsidy. It is unclear whether the "emergency" is a potential shrinkage of soybean imports from the United States or low soybean prices that threaten to derail China's multi-year effort to shift land from corn to soybeans.

Jilin Province issued a "circular on 2018 soybean planting task"《关于下达2018年全省大豆种植面积任务的通知》to township governments ordering local officials to expand soybean planting, and warning them that they must raise their "awareness and political standing" to decisively complete the task. Local officials were told to email their soybean plan to provincial officials by May 2. On April 28, Changchun municipality issued an "emergency notice on implementing the 2018 soybean planting task《关于迅速落实2018年大豆种植面积任务的紧急通知》which emphasized that "expanding soybean area is an important political task in agricultural production." Heilongjiang Province also issued an "emergency" circular to expand soybean planting this year.

The Jilin circular issued to Shuangliao District officials (see below) promises subsidies of 350 yuan per mu ($813 per hectare or nearly $344 per acre). A meeting convened by the vice mayor of Heihe City in Heilongjiang promised a 200-yuan/mu soybean producer subsidy and a 150-yuan subsidy for switching from corn to soybeans--the same as the 350-yuan subsidy /mu in Jilin. (Heihe's corn subsidy is 100 yuan/mu.)

Market prices for soybeans in Heilongjiang now range from 3.3 to 3.6 yuan/kg. With a yield of 140 kg/mu, the 350-yuan subsidy would add 70-to-75 percent to the 462-to-504 yuan/mu gross income per mu from growing soybeans. The subsidy is also roughly equal to the average rent for land in northeastern China.

"circular on 2018 soybean planting task" issued to
local governments in Jilin Province's Shuangliao municipality.
Academy of Social Sciences Agricultural Economist Li Guoxiang told NBD News that the provincial soybean-planting campaigns are a continuation of the 5-year "supply side structural adjustment" program to shift land from corn to alternative crops as well as an effort to reduce reliance on soybean imports.

The big subsidies could have been prompted by the late realization that market conditions have severely eroded the profitability of soybeans for Chinese farmers: domestic soybean prices are down and corn prices are up. The monthly Ministry of Agriculture commodity market report released April 18 revealed that soybean prices in Heilongjiang Province are down 9.2 percent from a year ago, while corn prices in the province are up 12-to-18 percent from a year ago. National Bureau of Statistics farm producer price indexes show a similar pattern of rising corn prices and falling soybean prices from 2017 to 2018. These price movements seem likely to prompt farmers to switch from soybeans to corn, thus bringing the "supply side structural adjustment" program to a screeching halt in its third year.
Changchun emergency notice says expanding
soybean planting is an important political task.
Meeting in Heihe City promised subsidies of 200 yuan and 150 yuan for growing soybeans.

Wednesday, May 2, 2018

Xinjiang Leads China Wheat Policy Reform

China's Xinjiang Autonomous Region says it will replace a support price for wheat with market-determined prices supplemented by a bigger direct payment to farmers, according to Grain and Oils News. A grain official said the policy adjustment is intended to address the province's surplus of low-quality wheat which has overwhelmed storage facilities.

Since 2004, Xinjiang has set a support price for wheat and given farmers subsidy of 0.3 yuan for each kilogram of wheat they sold to state-owned enterprises. Since 2009, the region has set an annual plan to purchase 1.5 mmt of wheat for a "temporary reserve." An official said that paying farmers based purely on the weight of grain sold encouraged them to produce maximum quantities without regard to quality. The policy was set to ensure that the region -- in China's northwest far removed from the main wheat-producing regions -- could meet its food needs with a small surplus. Instead, an official told Grain and Oils News, farmers produced a bloated surplus and there is no room in storage facilities. Farmers became overly reliant on selling to the government, and undermined the marketing system, officials explained.

This year Xinjiang will begin "supply side structural reform" for wheat. Officials say the wheat price for farmers will be set by the market, with prices rewarding farmers for high quality wheat demanded by the market. "Diverse players" will enter the market, and Xinjiang will no longer carry out the 1.5-mmt "temporary reserve" purchase plan.

The government will still have a significant role, however. An annual wheat production plan will be drawn up for each county. Pilot programs will promote selenium-enriched wheat, organic wheat, and strong gluten wheat and brands in various regions. Minimum and maximum inventory guidelines will be issued to warehouses and mills. Banks will be instructed to set aside funds to finance grain purchases by marketing enterprises, and interest rates will be subsidized.

Farmers will get more generous subsidies. The "cultivated land fertility protection" subsidy will be increased by 30 yuan per mu for winter wheat and 15 yuan for spring wheat to ensure that grain is profitable enough to attract farmers, Grain and Oils News said. Information about this subsidy is elusive. Funds are issued to counties which set the amount of the subsidy.

News items say farmers who grow wheat, corn for silage, alfalfa, field corn and unspecified specialty crops are eligible for the land fertility protection subsidy. (Cotton, sugar beet producers are not eligible--they have their own subsidies.) In one region, a calculation indicates the land fertility subsidy was 56 yuan/mu in 2017 and would therefore be 86 yuan/mu this year. In Wusu prefecture, a document specifies a subsidy of 100 yuan/mu for producers of wheat, corn for silage, alfalfa, and 18 yuan/mu for field corn, tomatoes for processing, sunflowers, and melons. The same subsidies were announced for Bayingol Meng Prefecture in January and for Yili Kazakh Prefecture in 2016.

In principle, the land fertility subsidy is intended to pay for measures to restore soil fertility, but no conditions for receiving the subsidies are specified.

A reform of wheat policy announced in Xinjiang may indicate China's new direction for food grain policy. The minimum procurement price policy for the core wheat regions of Hebei, Henan, Shandong, Jiangsu, Anhui, and Hubei has always been distinct from Xinjiang's wheat policy. A Ministry of Agriculture report on supply side structural reform for wheat issued in 2017 also blamed the price support program for prompting farmers to produce excess supplies of moderate-gluten wheat because it rewards them for test weight and low proportion of imperfect kernels but not for gluten or protein content. A Chinese Academy of Agricultural Sciences study of wheat samples from 2006 to 2015 found that the proportion of wheat meeting standards for strong gluten declined by half over the period and the proportion meeting weak-gluten standards remained minimal over the study period.

A similar strategy of direct payments in exchange for reducing support prices has been promised for rice this year, but no concrete measures have been announced.

Friday, April 27, 2018

Rice Province Plans to Reduce Crop

China's biggest rice-producing province has announced plans to cut production of the crop as the country copes with a rice glut. This is a reversal of now-forgotten policies aimed at expanding rice production in the same province six years ago.

According to State media, Hunan Province's communist party leadership announced an objective of reducing Hunan's area planted in rice by 3 million mu--equal to 200,000 hectares--during 2018. The province's "number one document" aims to reduce production of double-cropped rice and shift the land into high value specialty crops.

Hunan authorities plan to choose 10 counties for development of vegetable supply bases and another 10 counties will be targeted for development of specialty fruits and tea. A provincial communist party official explained that Hunan plans to focus on building up seven major agricultural industries by 2020: rapeseed, bamboo, grain processing, livestock and poultry, tea, vegetables, and cotton-flax-silk.

The move is part of a supply-side structural adjustment reform to reduce production of low-quality rice as China grapples with a rice surplus. The provincial communist party official said Hunan must shift its cropping structure away from uniform rice production toward a crop mix with higher quality crops based on regional comparative advantage to follow consumer demand, optimize returns for farmers, and build a Hunan provincial brand.

The cut in rice planting is a reversal of rhetoric sounded by Hunan officials ten years ago when they worried that rice producers were leaving their land idle, switching from two crops of rice per year to one, or converting the land to high-value crops. By 2011, officials had rolled out initiatives to revive production of two crops per year by giving out cash awards, ordering village leaders to prevent idling of land, and intervening to transfer idle land to farmers who would grow rice on it. In 2012, a subsidy program was launched to start specialized early rice seedling farms, rice-transplanting companies, and to mechanize transplanting.

According to Hunan statistics, area double-cropped in rice went up from 2010 to 2014, while single-cropped area fell. These were the years when officials were campaigning to revive production of the early rice crop, which is notorious for poor quality and is grown primarily to meet government production targets. The early crop posted the biggest increase in production: an increase of 92,000 hectares (suggesting numbers may have been padded) during 2010-14. The late rice crop rose 52,000 hectares, approximately equal to the 54,000-hectare decline in land where a single rice crop was planted per year.

Changes in Hunan province rice-planting
Double-cropped rice
Years
Early crop
Late crop
Single-crop rice
1000 hectares
2010-14
92
52
-54
2014-16
-32.5
-35.2
32.2
2016 area
1,421
1,459
1,206
Source: Hunan statistical yearbooks.

By 2014, it was evident that the campaign to boost early rice production had resulted in excess supplies of rice. The government was the main customer for the early rice crop, in particular. Officials reversed course, began discouraging early rice production, and cut the support price for the crop. From 2014 to 2016, the early rice crop fell by 32,500 hectares and the late crop fell by 35,200 hectares in Hunan, while planting of single-crop rice rose by 32,200 hectares.

Hunan still plants mostly double-cropped rice. In 2016, the province reported planting over 1.4 million hectares each in early and late rice, and 1.2 million hectares in single-season rice. (No data on 2017 rice production in the largest rice-producing province is available today -- two months after the completion of the rice marketing season -- despite China's enthusiasm for "big data" and "market information.")

Presumably, Hunan's 200,000-hectare reduction will reduce the 2.9-million-ha combined area planted in early and late rice crops. Thus, double-cropped area is presumably targeted for about 1.35 million hectares.

Why are Hunan officials announcing this objective of reducing double-cropped rice production in late April, about two months after farmers typically plant the early rice crop?

If they were wrong about early rice six years ago, why should we expect communist officials to correctly guide farmers this time on what they should plant?

Tuesday, April 17, 2018

Soybean Tariffs to Boost State-Owned Companies?

China's big state-owned soybean importers will not be affected much by proposed 25-percent tariffs on U.S. soybeans, according to a Chinese Business Journal article posted on numerous web sites yesterday.

The article appears to be a propaganda piece portraying the possible tariffs as an opportunity to boost the role of state-owned enterprises in China's soybean industry and freeze out multinational grain traders. The lack of named sources and the journalist's stringing together of propaganda memes suggests the article is propaganda masquerading as news for investors.

The reporter notes that three of the top soybean importers are state-owned companies--COFCO, Beidahuang, and Sinograin.

The China Business Journal reporter, writing under an apparent pseudonym, quotes an unnamed employee of an unnamed state-owned enterprise who said that officials from unnamed "government departments" have been asking Chinese companies about their soybean import volume, how much they import from the United States, and what their plans are for purchasing this year.

"The tariffs will have an extremely small effect on us large companies," the state-owned company employee told the reporter, "Because U.S. soybeans are only one-third of our purchases."

"The effect of the soybean tariffs is not extremely large," the article repeated several times in various forms throughout the article.

According to the reporter, the U.S. futures price dropped 5.25 percent after China's proposed 25-percent tariff on U.S. soybeans was announced. "But our company is not affected much, because we hedged our soybean purchases," the employee explained.

An investment analyst told the reporter that Brazilian soybeans cannot replace U.S. soybeans if China imposes the tariffs. Brazilian soybean prices are rising as the market anticipates a rush of Chinese buyers to South America who will compete for a limited supply of beans. Brazil already exports more than half of its soybeans, and about three-fourths of those exports already go to China.

The article segues to another propaganda talking point: Brazilian and Chinese State-owned companies can link up to trade soybeans directly, bypassing "ABCD" multinational trading companies. The investment analyst says he went to Brazil where he found that Brazilian companies were eager to learn about matters like Chinese customs clearance, inspection and quarantine so they could export soybeans directly to China without selling through an ABCD intermediary.

A representative of a Brazilian state-owned company said he had come to China to make deals with Chinese state-owned companies for direct trade in soybeans.

The Brazilian said, "We have a small order from a Chinese state-owned company to test the water."

The reporter then moves on to the old complaint that imported soybeans are destroying the Chinese soybean processing industry by depressing prices.

The reporter learned from a multinational grain trading company that the market for domestic Chinese soybeans is very limited. In particular, he said there was virtually no market for soybean meal produced from domestic soybeans because the price is too high.

The article gloms on to the "quality" mantra circulated by officials this year to claim that the "low end" oil and meal products from crushing imported soybeans have little momentum from consumer demand as it shifts to high-end products. Premium products of domestic non-GMO soybeans have better prospects, the journalist suggests.

In fact, the opposite is true. Imported soybean volume grows faster than expected year after year. The Chinese government had to step in to buy extra domestic soybeans produced in northeast China this year because there was not enough demand.

Saturday, April 14, 2018

Food Security AND Quality Promised by China Grain Reserve

China's food security strategy will prioritize quality over pure volume of grain, according to the head of the country's new State Administration of Grain and Commodity Reserves. Authorities will vomit their huge store of sub-par grain reserves into the market, induce farmers to grow high-quality grains consumers want, create a network of labs to test the grains, build grain industry parks housing millers and traders who will profit from premium-priced products, and crack down on corrupt operators in the system.

The grain and commodity reserve administration created by China's recent government realignment was inaugurated April 4, 2018. It will be responsible for managing national strategic reserves of grain, cotton and sugar under the direction of the National Development and Reform Commission. The new bureau takes on responsibilities of the former State Administration of Grain, Ministries of Civil Affairs and Commerce, and National Energy Administration.

In a Peoples Daily interview Zhang Wufeng, the reserve bureau's director (previously communist party secretary of the State Administration of Grain that it replaces), gave assurances that the "food bowls of Chinese people must remain tightly in their own hands" but Zhang also prioritized accelerated disposal of excessive inventories of corn, rice and other commodities to reach "rational" levels as soon as possible.

Zhang observed conflicts arising from changes in Chinese society. On the production side, China has surpluses of some commodities (i.e. corn and rice, although he did not mention them) and deficits of others (soybeans, again not mentioned specifically). Zhang observed that Chinese consumers had transitioned from simply getting enough to eat to "eating well, eating healthy, eating with assurance, and eating with convenience," but he fretted that China lacks supplies of environmentally friendly and high quality foods.

Zhang promised to align the grain reserve system with market demand. He also said adjustment of China's crop mix and rotation of crops and land retirement are necessary. The reserve bureau has no responsibility for crop production, but he promised to scientifically set the minimum prices for wheat and rice, coordinate reserve procurement and sales, and pay more attention to the potential consumption (of what they procure?)

A "China quality grain project" (优质粮食工程) kicked off last October (by Zhang) is the grain reserve bureau's contribution to the national rural revitalization strategy, according to Zhang. This project aims to upgrade the quality of China's grain and edible oils by improving post-production services, establishing a national system of third-party grain-testing organizations, and revamping quality control guidelines for grains, flour, noodles, and edible oils by 2020. The Ministry of Finance allocated 5 billion yuan ($790 million) for the project in 2017. By implementing the "China good grain and oil action plan," Zhang promised to complete "the last kilometer" for quality grain and oils to reach the dining tables of each consumer’s family.

Zhang promised to transform China from a "big" grain-producing country to a "strong" grain-producing country by giving top attention to quality and creating value chains based on deriving profits from quality products. Model cities and counties, specialty industry parks, and leading backbone companies will be components of a modernized grain economy. Zhang pledged that food security will be maintained by coordinating "government and market, the current situation and long-term prospects, production regions and consuming regions, domestic and foreign, security and development."

Authorities will continue to intervene in markets through "macro control" using central government reserves as "ballast stones" and local reserves as "the first line of defense." Zhang promises to nurture state-owned enterprises--through mixed ownership--while supporting small and medium enterprises in the grain market. The reserve bureau will speed up development of a national electronic grain exchange platform and brokering grain trade between grain-producing provinces and grain-deficit provinces.

Finally, Zhang sends a message to corrupt granary operators by promising to demand grain "quality" and "honesty" from both government and industry through strict party governance, high standards for cadres, and concentrated action plans featuring "great investigation, quick correction, strict law enforcement" to root out "hidden risks." A hot line has been set up for the public to report malfeasance in the grain marketing and storage system.


Wednesday, April 11, 2018

Spring GMO Seed Crackdown in China

With spring planting approaching, Chinese provinces are cracking down on illegal trading, testing, and planting of genetically modified seeds.

A March notice issued by Heilongjiang authorities warned farmers not to buy illegal GMO seeds sold as "pest-resistant or weed-resistant," offered free testing for seeds they already have, and urged farmers to report any merchants selling illegal GMO seeds.

On March 29, Heilongjiang Province officials promised to go to fields with rapid-testing kits to check for genetically modified corn and soybeans.

On April 9, Shandong, another of the biggest agricultural provinces, announced its campaign to crack down on organizations doing research on GMO crops, trials, production, marketing, processing, and imports of genetically modified material.

The same day, Inner Mongolia officials said they will focus on illegal sale and falsely labeled GMO seeds for corn, rapeseed, soybeans, sunflowers, and potatoes.

China allows research organizations to experiment and conduct trials of genetically modified seeds as long as they are approved and reported to the Ministry of Agriculture and closely controlled and monitored. But no genetically modified grain or oilseed crops have been approved for commercial planting in China.

In February China's Ministry of Agriculture reported that they caught seven companies conducting trials of genetically modified corn that were either unreported or illegal during 2017. Da Bei Nong Ltd. Co (aka DBN) was caught growing 8 kinds of GMO corn in unreported intermediate trials on a test plot in Heilongjiang covering over an acre of land. (In 2016, a DBN executive pleaded guilty to stealing corn seeds from test plots in the United States and sending them back to China in popcorn jars.)  Another Beijing seed company was also caught growing 8 kinds of GMO corn on about 1.8 acres in Heilongjiang. Five other companies and a company associated with Jiangsu's Academy of Agricultural Sciences were caught growing small amounts of GMO corn ranging from 5 to 150 stalks in a seed-breeding area in Hainan Province. All the trials were suspended and material destroyed.

According to one article, the Ministry of Agriculture's report alarmed many Chinese consumers who worried that genetically modified corn is already in the country's food system.

The provincial crackdowns are probably intended to assure consumers that authorities are tightly regulating GMOs, as they have promised to do many times. However, the crackdowns also suggest that there are already significant quantities of illegal GMO seeds sold and planted in China.

Sunday, April 8, 2018

MOFCOM: Peoples Republic of Shoppers

The blizzard of tariffs and trade rhetoric is overshadowing China's "new concept" of opening its economy to give its consumers access to better quality products. China's Commerce Minister Zhong Shan finished off a March 11, 2018 press conference dominated by questions about trade conflicts with a discourse on how MOFCOM plans to push ahead with plans to "give city and rural people more abundant choices, much more convenient services, and a more comfortable experience" by upgrading shopping opportunities for Chinese consumers and giving them access to imported high quality products. 

The initiative to shift China's drivers of growth from investment and exports to consumer demand was introduced by Xi Jinping at the October 2017 "19th Party Congress." The idea has been dressed up with the awkward Maoist slogan "Change in the Main Social Contradictions," and propaganda organs have explained how meeting consumer demands for quality and comfort fit neatly into China's historical progress toward a communist society.

Minister Zhong explained that 400 million of China's 1.4 billion people have entered the "middle class," and the main problem ("contradiction") has shifted to satisfying peoples' desire for a better life [from the 1950s-era problem of developing industry and modernizing agriculture in a "backward" country, according to the Peoples Daily]. Zhong cited the estimated $200-billion of overseas shopping done by Chinese citizens as evidence that China's economy does not supply the high quality products its consumers want. "Foreign purchases reflect the insufficient supply of quality products in the country and their high price," Minister Zhong said.

MOFCOM will work on initiatives to innovate in product marketing and distribution, expand consumption, and increase effective supply in three areas of work.

First, establish domestic platforms for consumption. Pedestrian malls for shopping will be developed to make cities more livable and to serve as a "beautiful calling card" for cities. Community shopping networks of convenience stores, food markets and other outlets should provide a commercial network of daily shopping within 15 minutes of residences. In the countryside, a network of market towns with shops and services will be part of a makeover of the countryside. E-commerce will be greatly developed, with integration of "online" and "offline" commerce.

Second, promote consumption and reduce costs to consumers by broadening access to the market, reducing tariffs on imported cars and some daily consumer products, opening the market to telecommunications, medical, education, elderly care services.

Third, improve consumer confidence in products they buy through rectifications and consolidation of the Internet and rural markets and by establishing a traceability system for agricultural products.

Tariffs announced last week on items such as imported pork, cherries, apples, grapes, plums, cranberries, pistachios, almonds, and macadamia nuts go in the opposite direction by cutting off Chinese consumers from high quality products.

Sunday, April 1, 2018

China's Soybean Retaliation: No Good Options

Official China has been mum on its intent to strike back against U.S. soybeans in the trade war brewing between the two countries. While online commentators in China agree that soybeans are the logical target for retaliatory tariffs, several have concluded that the impact on Chinese buyers and consumers makes this an undesirable option.

Last week, former Minister of Finance Lou Jiwei recommended striking back first at American soybeans, then cars, then aircraft, in remarks at an economic forum in Zhejiang Province last week.

A more developed argument for targeting U.S. soybeans appeared in a March 30 Global Times column by Cheng Guoqiang, Professor at Tongji University in Shanghai and former long-time researcher/advisor on farm trade for the State Council's Development Research Center. Cheng advocates "necessary countermeasures" against U.S. soybeans in accord with WTO rules to "defend China's national interest," "defend the spirit of WTO," and to counter "protectionist" U.S. measures that "show contempt for the multilateral trading system."

Cheng argues that retaliation against soybeans will have the greatest impact since they are the no. 2 U.S. export to China, with 2017 sales valued at $14 billion. Soybeans account for 58% of U.S. agricultural exports to China and 11% of all U.S. exports to China. He points out that U.S. soybean farmers rely heavily on exports, with 44% of production exported and 62% of those exports going to China last year.

Cheng claims that soybeans are politically strategic because production is concentrated in Midwestern States that were critical to President Trump's victory in the 2016 election. Cheng thinks pressure from these agricultural states will bring Trump to the bargaining table.

As the northern hemisphere begins its planting season, Cheng claims that clamping down on U.S. soybeans could encourage farmers in the Black Sea region and other areas to plant more soybeans and reach their "suppressed" potential as soybean suppliers. He suggests that South American producers could also receive a "signal" to produce even more.

Several other essays on the topic appearing last week briefly recounted the same arguments for targeting soybeans and puzzled over why soybeans were not included in the initial list of U.S. products China has targeted for retaliation:
These commentaries drilled deeper into the data about soybean trade and production than Dr. Cheng did, and each arrived at conclusions like "The Intellectual's" statement: "China and American soybeans are inseparable" ["中国离不开美国大豆"].

Each commentator recounts the meteoric growth of China's soybean imports--from 300,000 metric tons in 1995 to 96 million metric tons (mmt) in 2017. Imports grew 14 percent during 2017. China now consumes nearly a third of the world's soybeans and produces only 4 percent. "The Intellectual" commented that, "Soybeans are indispensable to China." Chinese people cannot maintain their much-improved living standards without imported soybeans, he wrote. 

China imports an estimated 85 percent of the soybeans it consumes, according to the "striking back" authors."The Intellectual" explains that the extreme reliance on imports came about due to a strategic choice to focus limited land resources on producing high-yielding cereal grains. Wheat, corn and rice yield 3 times as much grain per acre as soybeans, "so soybeans had to be the victim" as China sought to meet food security targets, "The Intellectual" explained. 

With China's current soybean yield of 1.8 metric tons per hectare, it would need 53 million hectares of farmland to grow the 97 mmt of soybeans the country imported during 2017. China currently plants about 7 million hectares of soybeans and 35 million hectares of corn. China says it has 135 million hectares of cultivated land in total.  

China imports such a large share of the world's soybeans that there would be nowhere else for China to fill its soybean deficit if it stopped buying U.S. soybeans. Last year China's imports equaled 64 percent of the 151 mmt of soybeans traded in world markets. While China is the world's biggest buyer, it has little bargaining power because there are only two major supplying countries. The "striking back" authors reported that Brazil supplied 53 percent of China's soybean imports and the United States supplied 35 percent last year. Argentina is the third supplier with a 7 percent share. "Our country basically has to choose between importing from Brazil and the United States," the "striking back" authors commented. 

There is no other supplier that could fill China's deficit if U.S. soybeans were limited. China's growing demand has already prompted a huge increase in Brazilian production that has reduced reliance on the United States. Blogger Shi Hanbing argues that Brazil already supplies half of China's soybean imports and has reached its limit as a supplier. Moreover, he points to USDA reports that say both Brazil and Argentina are expected to have diminished soybean harvests this year, shrinking potential soybean supplies. 

In view of these facts, all three commentators conclude that the main impact of imposing a steep tariff on U.S. soybeans will be to increase the cost of soybeans to Chinese buyers. The commentators anticipate that the higher cost of soybeans will have a "chain reaction" passing on price increases to meat and vegetable oil in China, causing an increase in the CPI. 

The "striking back" authors recommend that China save retaliation against soybeans as its "ace card." Blogger Shi suggests that the Chinese population eat less meat and switch to eating salads. 

For now, China seems to have little recourse to retaliate against U.S. soybeans without hurting itself, perhaps as much as it hurts U.S. soybean growers. In the long run, this will surely prompt Chinese leaders to double down on their efforts to nurture new soybean suppliers in order to reduce China's reliance on two soybean suppliers. 

Ironically, a similar effort by Japan many years ago helped catalyze the emergence of China's top supplier. After a U.S. export embargo during the 1970s raised questions about its reliability as a supplier, soybean importer Japan looked to diversify its soybean supply by investing in Brazil--a minor soybean producer at the time. A lot of other events, R&D, and policies had to line up to make it happen, and it took decades, but Brazil has now emerged as the top soybean exporter in the 21st century. Brazil's massive supplies also are the chief reason for low soybean prices--the "unfair" phenomenon Chinese soybean commentators normally chatter about and blame on the United States.

Now Chinese government and agribusiness leaders will surely get busy trying to create the next Brazil somewhere in the world. 

Wednesday, March 28, 2018

China Subsidizes Buyers and Producers of Corn and Soybeans

Two of China's top grain-producing provinces announced subsidies for buyers of corn and soybeans layered on top of generous subsidies for growers. For some corn, it is possible that three different subsidies could amount to 38 percent of the farm price, and subsidies could add up to nearly half of the purchase price for soybeans.

On March 23, Heilongjiang and Jilin Provinces announced a subsidy for processing plants and feed mills that buy corn and soybeans harvested in the provinces during 2017. The subsidy for corn purchases is 100 yuan per metric ton purchased in Jilin Province and 150 yuan in Heilongjiang. The subsidy for soybeans purchased is a whopping 300 yuan/mt in both provinces.

The corn purchase subsidy is aimed at industrial processors that make starch and alcohol products from corn with at least 100,000 mt of annual capacity and feed mills with at least 50,000 mt of capacity. The soybean subsidy is aimed at companies that make food products from soybeans, such as tofu, soy flour, soy milk, dried tofu, pickled tofu, fermented bean curd, dried bean curd, extruded soy products, fermented soy products, soy-based protein supplements, bean products processing and 13 or more soybean food products like bean sprouts, bean paste, with capacity of 5000 mt or more.

The average purchase price of corn in Heilongjiang is about 1725 yuan/mt, so the 150-yuan corn purchase subsidy equals 8.7% of the purchase price in that province.

The average purchase price of soybeans is 4140 yuan/mt, so the 300-yuan purchase subsidy equals 7.2 percent of the price.

Farmers in Heilongjiang also get producer subsidies of 133.46 yuan per mu for growing corn and 173 yuan/mt for growing soybeans. The payments are awarded based on the actual area planted in these crops (15 mu = 1 hectare of land). Jilin Province also gives these subsidies, but the Jilin Government has not announced the amount.

Let's convert the Heilongjiang producer subsidy payments to yuan/mt. Assuming a corn yield of 400 kg/mu (6000kg/ha), the corn subsidy equals 333.65 yuan/metric ton. That's equal to 19.3 percent of the 1725-yuan/mt purchase price. Assuming a soybean yield of 140 kg/mu (2100kg/ha), the soybean producer subsidy equals 1235.7 yuan/metric ton, which is equal to 29.8 percent of the 4140-yuan/mt purchase price.

We're still not finished. China has a nationwide "support and protection subsidy" for all farmers who plant grain crops. This subsidy consolidates the previous "three subsidies" (direct payment, improved seed subsidy, and general input subsidy). Land planted in corn and soybeans or any other grain crop is eligible for this subsidy. According to government publicity, farmers get a subsidy based on their land holding unless they plant non-grain crops, leave land idle for multiple years, or build structures on the land. "New-type farmers" who rent-in land are eligible to receive the subsidy if they have an agreement specifying whether lessor or lessee receives the subsidy payment.

In theory, the "support and protection" subsidy is supposed to fund land fertility improvements, but an announcement of the subsidy in Heilongjiang makes no mention of this, nor does it mention any conditions for receiving the funds. The announcement proclaims, "If you register your land, then you can get the subsidy!" The announcement also emphasizes that this is separate from (i.e., in addition to) the corn and soybean producer subsidies. Thus, in Heilongjiang a farmer who plants corn on his land should get the support and protection subsidy and the producer subsidy for corn. Same for those who plant soybeans.

In Heilongjiang, the support and protection subsidy is 71.78 yuan/mu this year (Again, Jilin has not announced its subsidy). If corn is planted on the land and the yield is 400 kg/mu, the support and protection subsidy equals 10.4 percent of the current corn price in Heilongjiang. If the land is planted in soybeans, the support and protection subsidy equals 12.4 percent of the current soybean price.

2017/18 Subsidies in Heilongjiang Province
Corn (assume yield 400 kg/mu):
  Processor purchase subsidy 150 yuan/tonne 8.70%
  Corn producer subsidy 133.46 yuan/mu 19.30%
  Support and protection subsidy 71.78 yuan/mu 10.40%
Potential total corn subsidy 38.40%
Soybeans (assume yield 140 kg/mu)
  Processor purchase subsidy 300 yuan/tonne 7.20%
  Soybean producer subsidy 173 yuan/mu 29.80%
  Support and protection subsidy 71.78 yuan/mu 12.40%
Potential soybean subsidy 49.40%
note: 15 mu = 1 hectare of land. Processor subsidy available only for corn and soybeans purchased March 23 - April 2018, 2018.

The window for the processor subsidies is relatively short--only corn and soybeans purchased between March 23 and April 30 will be eligible. This subsidy appears to be intended to ensure that leftover corn and soybeans at the end of the marketing season gets purchased before authorities begin auctioning off corn reserves in May--which is expected to push prices downward.

In total, the Heilongjiang government could pay out three subsidies equal to 38 percent of the value of corn and over 49 percent of the value of soybeans for the relatively small volume that receives all three subsidies. It would appear that all corn produced in Heilongjiang should at least be eligible for the producer subsidy and the support and protection subsidy--a total of 29.7 percent of the purchase price. Similarly, all soybeans in Heilongjiang should be eligible for these two subsidies--equal to 42.2 percent of the purchase price.

Farmers nationwide get the support and protection subsidy. But the three northeastern provinces (Heilongjiang, Jilin, and Liaoning) and Inner Mongolia are the only regions that have the producer subsidies for corn and soybeans. So far only Heilongjiang and Jilin have the corn and soybean processor subsidies. Thus, northeastern farmers are the most heavily subsidized farmers in China.

Wednesday, March 21, 2018

China Views on Dumping and Farm Subsidies

Two recent Chinese commentaries reveal commonly-held beliefs about American farm subsidies that are behind Chinese antidumping and countervailing duty investigations of U.S. farm products like chicken, distillers grains, sorghum, and maybe soybeans.

A March 7 article, "Influence of U.S. agricultural subsidies on world agricultural trade" from the State-supported Futures Daily was posted on the Ministry of Commerce's WTO information web site and a number of other Chinese sites. The unidentified author asserted that imports of sorghum from the U.S. "receive subsidies from the U.S. government," which allow them to be exported to China at a price lower than the "normal value," and "there is a significant degree of dumping." The implicit assumption is that the Chinese price is the "normal" value, and any price lower than the Chinese price must be abnormal--the "middle kingdom" is the center of the world, after all.

A March 20 article by a commentator with the nationalist Global Times, "Subsidized American Soybean Exports Seriously Pressure China's Soybean Farmers," says "everyone knows" China must impose strong limits on imports of soybeans from countries that give huge subsidies that create an "unfair advantage." This author recites statistics to show that America dominates the world soybean market, has been increasing soybean production, and is responsible for excess supply in the world.

These claims of U.S. dominance contrast with recent American news media reports fretting about loss of soybean market share to Brazil and China's purported preference for Brazilian soybeans.

The sorghum commentator asserts that the U.S. government boosts farm exports using export credit guarantees, "export expansion plans," and "huge subsidies" for fuel, fertilizer and pesticides. The soybean commentary acknowledges that the U.S. government says its subsidies are a small proportion of farmers' income and comply with WTO rules, but he dismisses these claims and accuses the United States of "sabotaging WTO rules."

A logical fallacy common to Chinese findings of "dumping" is to assert that a correlation of two data items proves that one causes the other. The sorghum author explained that "the price continued to decline as large volumes of U.S. sorghum entered the China market." The Ministry of Commerce's announcement of the sorghum investigation correlated declining Chinese sorghum prices with high imports of U.S. sorghum.

A Ministry of Agriculture report on the 2016/17 sorghum market, however, attributed the decline in Chinese sorghum prices to declining Chinese corn prices. This report observed that Chinese farmers planted 32 percent more sorghum in Heilongjiang Province, 15 percent more in Jilin Province, and 22 percent more in Liaoning Province during 2016 compared to the previous year--at the same time the Ministry of Commerce claimed imports of sorghum were depressing profits for Chinese sorghum farmers.

The soybean commentator asserts that imports of U.S. soybeans caused a decline in Chinese soybean production. In fact, the decline in Chinese soybean production was due to Chinese farmers' corn-planting mania generated by a high corn price guaranteed by the Chinese government that made corn much more profitable than soybeans. While the soybean commentator celebrates the long history of soybean-planting in China, under communist authorities soybeans have always been a minor crop because plans and policies favored grains that have higher yields per hectare.

Thirty-eight years ago, a USDA report on China's agricultural market situation commented: "China will again attempt to expand soybean production in 1980, although past efforts have had little success." Stagnant soybean production in China is nothing new.

The sorghum author asserts that the United States became the leading agricultural exporter using a "low price plus high subsidy" strategy. To prove this, the Chinese writer cites USDA estimates of farm production costs and returns for 1975 to 2014 for six major commodities which show that costs exceeded revenues in most years. Although "farmers couldn't make money from the market, they were able to maintain their income by receiving subsidies from the government," the Chinese author concluded.

It's true that farmers in the United States make money in some years and lose money in other years, but the losses are not as pervasive, nor as big as the Chinese author concludes from scanning the USDA estimates. He does not understand that the USDA's cost estimates include a large proportion of imputed "opportunity costs"--the market value of family labor and land owned by the farm family. Cash expenses for many farms are less than the full "economic costs" in the USDA accounts.

USDA estimates of cash income for the farm sector as a whole show that government payments equal about 2-to-3 percent of gross income for farms. The net cash income for U.S. farmers peaked at $135 billion in 2012 and 2013 and is forecast to be just $92 billion in 2018. Direct payments from the government did not make up for the decline in income--in fact, payments from the government fell from $11 in 2013 to an expected $9.2 billion in 2018.
 Source: data from https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics/

Most U.S. farmers and their spouses work at off-farm jobs to make ends meet and to get health insurance coverage. USDA estimates show that farming families receive about 80 percent of their income from nonfarm sources. Moreover, Chinese critics do not understand that American farmers are business-men and -women who invest and borrow hundreds of thousands or millions of dollars and spend years buying and renting land to build up a viable farming operation.

Chinese critics also implicitly presume that countries should be self-sufficient. The sorghum essayist notes that "commodity surpluses are the main feature of U.S. agriculture, so the industry is extremely reliant on exporting." The soybean commentator criticizes the United States for producing more soybeans than are needed by the U.S. market, creating "surpluses" in the world market. Why wouldn't a country with a large endowment of highly productive farmland export commodities to densely populated countries?

Chinese critics overstate the dominance of U.S. commodities. High world prices during 2007-08 and 2011-12 encouraged farmers all over the world to produce more cotton (India), corn (Ukraine), and soybeans (Brazil). Brazil's expansion of soybean production--mostly to sell to China--is the dominant source of recent growth in soybean supplies. Brazil accounted for nearly half of China's soybean imports last year.

A few Chinese writers understand U.S. farm programs better than most Americans. In a November 2017 Farmers Daily essay, Ke Bingsheng, an agricultural economist and president of China Agriculture University, explained that U.S. farm subsidies are constantly evolving and being revised. Prof. Ke explained that the 2014 Farm Bill had hundreds of pages and is incomprehensible even to those who understand all the English words. He warned readers that they could arrive at erroneous interpretations if they don't understand the historical background of U.S. policies.

Prof. Ke recalls lessons he learned about American farm policy from conversation with USDA officials during a trip to the United States. More open discussion and interaction like Prof. Ke has engaged in would help dispel mistaken presumptions that result in both sides talking past each other on these issues.